Holiday pay: more headaches for employers?

The Supreme Court in Chief Constable of the Police Service of Northern Ireland and another v Agnew & others, has recently upheld a claim for historic underpayments of holiday entitlement because the underpayments were part of a series of deductions.

What did the Supreme Court decide?

The parties acknowledged that a number of police officers and staff in Northern Ireland had been underpaid holiday pay. However, a central question which the Supreme Court had to consider was how far back that underpaid holiday pay should be backdated and whether it should be restricted to just three months before the date of their claims, or whether this was open-ended.

The Supreme Court held that what constitutes a series of deductions is a question of fact taking into account all the relevant circumstances of the deductions. In this case each unlawful underpayment was linked by the common fault that holiday pay had been calculated by reference to basic pay only (rather than considering actual hours worked, including overtime). A series of deductions does not need to be a contiguous sequence of deductions and a gap of more than three months between underpayments does not necessarily bring to an end a series of deductions.

Implications of this decision for employers

The ruling gives rise to a significant liability for the Police Service of Northern Ireland (around £30 million), and employers across the UK will be concerned over the reach of this decision.

Importantly, however, in Great Britain, relevant legislation imposes a two-year limit on unlawful deductions claims - legislation that was never implemented in Northern Ireland.

As we have come to expect with holiday pay, this decision may have opened another can of worms in relation to this two-year backstop, and employers in Great Britain may not be completely out of the woods if this two-year period is challenged in the future, potentially significantly increasing liability.

However, what is clear is that for all employers a gap of three months will not break a series of deductions and it will be easier for workers to claim for up to two years (in Great Britain) or more (in Northern Ireland) of underpaid holiday.

Unfortunately, much needed clarity on the calculation of holiday pay will give little comfort to those employers where their workforces are entitled to significant variable remuneration, with regular commission payments, overtime premiums or allowances. We recommend employers take this opportunity to assess how holiday pay is currently being calculated in their organisation to determine potential liability in respect of unlawful deduction claims.

Further information

For more information on any of the issues raised in this briefing, please speak to your usual Ashurst contact or to any of the people whose contact details are given below.